With the imminent departure of Dubya's Dumbass Duffers from the White House and the US Treasury, we can now see the full scale of the economic horror awaiting President Barack Obama. US employment fell by a post-war (that's World War II, not the Iraq war) record 2.6 million in 2008 and in all likelihood there is worse than that to come, with unemployment likely to go into double figures by 2010 - the worst figure since the 1930s.
Obama is proposing an $800 bn stimulus package to reflate the economy, which sounds on the face of it like a Big Number, until you read Paul Krugman's latest New York Times column and realise that the 'output gap' - i.e. the value of foregone US production resulting from rising unemployment - is estimated to be over $2 trillion over the next two years. The Obama stimulus plan doesn't even amount to half of the gap (unless it's $800bn per year of course, something that isn't clear from Obama's pronouncements so far - which have been limited).
Furthermore, 40 per cent of the package is tax cuts - which in current circumstances, are unlikely to boost demand as much as spending increases because people may just save the tax cut rather than spending it. (It's great to be back to good old-fashioned Keynesian economics, kids).
Why is the Obama administration being so timid? (If, of course, it is going to be that timid - maybe plans will be radically expanded when Obama actually gets into the White House). One possibility is that Obama is trying to go for a conciliatory bi-partisan approach, meeting the Republicans (some, although not all, of whom, are anti-stimulus) halfway. This is the patented Bill Clinton approach to running a Democratic administration and it sucks big time. The USA surely did not vote Obama in just so he could be a more lightweight version of George Bush. It is time to kick some ass out there, and a bold approach now will reap more rewards later than pussyfooting around trying to appease redneck fascist Republican Senators. If Krugman is unwilling to take a job in the administration at any price (which seems to be the case) then the administration should at least listen to him as The Voice of Reason. Other sane voices in US economics, such as James Galbraith of the University of Texas (author of the superb The Predator State) also need to have the ear of the Government. Get that $2 trn stimulus out the door pronto!
Similarly, after a very good autumn, support for New Labour in the UK seems to have fallen away somewhat as people realise that the partial nationalisation of the banks was a holding action rather than the solution to the non-lending problem. New economic data from the UK is looking absolutely abysmal - for example, the fastest contraction of output since 1980 (when the Tories were deliberately trying to wreck the economy!) Down 1.5% in 3 months - 1.5% in a year would have been seen as disastrous, but in one quarter, that's unbelievably bad.
The latest news reports suggest that the Government will step in and guarantee mortgage lending - for sure, that might be an improvement on the current situation, but it would still leave exactly the same set of idiots running things. Surely a better alternative would be for the Government to take over the entire banking sector and start lending out to businesses based on long-term assessments of growth prospects rather than not lending based on short-term fears of insolvency? We do need really drastic action - even more drastic than we've already had - to sort this one out. And, based on previous observation, the more drastic Gordon gets, the more popular he gets - so why not take this one all the way? Forward to the 1983 Labour Manifesto...